Many times buyers will encounter the issue of whether to include the unearned deposits in their deals or not. Moreover, a change in ownership can often impact the quality of work provided or services rendered. These issues can add complexity to a transaction. Below, we have tried to shed some light on the issue. The following scenario offers a way to proceed under a particular set of facts.

“If someone wants to purchase a bakery and the seller has accepted deposits from customers for future work that would occur after COE, what should be stipulate in the offer? As in the case of a specialty cake like a wedding cake, the person who originally contracted with the seller would be distraught to learn that there is a new owner and all cake designers have their own style, however standard. Should a buyer ask the seller to contact all people they have contracted with to notify them of the sale or would a publishing of notice of sale in the paper as required by escrow be sufficient? Another issue is that a 4-week escrow period is not much time to contact a bride and tell her that the person who was going to do her cake will no longer be doing it (doesn’t give bride much time to find another baker). Doing this might arise legal issues. A seller wanted to keep the deposits, have the buyer collect the remaining balance then make the cakes.”

The solution to the problem is given below:

Answer:
The deposits represent an asset of the business which should be transferred to the buyer. In the event that no services have been rendered through COE toward making the cakes, then the seller would not be entitled to any portion thereof. In the offer, we would suggest that you negotiate for a Management Assistance – Training period which would cover the period of time during which it would take to fulfill all of the pending wedding cake orders. In the event, the Seller was available for guidance, etc., we would further suggest not alerting the customers of any change of ownership and seek the Seller’s design and input advice as necessary for each cake.

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This entry was posted on Monday, September 24th, 2007 at 11:53 am and is filed under Buying a business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.